Drawdown Types Explained
Drawdown rules are the #1 reason traders fail prop firm challenges. Understanding the difference between daily, max, trailing, and static drawdown is not optional — it's the foundation of survival.
What Is Drawdown?
Drawdown measures the decline from a peak in your account balance. In prop trading, firms set drawdown limits that, once breached, automatically close your account. There are four main types:
01.Daily Drawdown
The maximum amount your account can lose in a single trading day. It resets every day at a fixed time (usually server midnight or 5 PM EST).
You have a $50,000 account with a 5% daily drawdown limit ($2,500). Your balance starts the day at $52,000 (from previous gains). If your equity drops to $49,500 at any point during the day, you're breached — even though it's above your starting capital.
Some firms calculate daily drawdown from the day's starting balance, while others use the day's highest equity. This is a massive difference — always verify which one.
02.Max / Overall Drawdown
The maximum total amount your account can lose from the initial starting balance. This is the absolute floor your account can never hit.
Your $100,000 account has a 10% max drawdown. If your balance ever drops below $90,000 — whether in one day or over a month — your account is terminated.
03.Trailing Drawdown (EOD)
The drawdown floor moves UP as your account grows, but it only updates at the end of each trading day (EOD = End of Day). Once it moves up, it never goes back down.
You start with $50,000 and a $2,500 trailing drawdown floor ($47,500). You end the day at $53,000. Your new floor becomes $50,500. If you lose $2,501 from $53,000 (down to $50,499), you fail — even though you're still profitable overall.
This is the most dangerous drawdown type for traders who take large intraday swings. Your wins literally work against you by raising the floor.
04.Trailing Drawdown (Real-Time / Intraday)
Same as EOD trailing, but the floor updates in REAL-TIME as your equity increases — not just at end of day. This is significantly harder.
You open a trade that goes $1,500 in profit, then reverses. Even if it happened in 2 minutes, your trailing floor already moved up by $1,500. If the trade reverses fully and then some, you could breach your drawdown despite being net even.
Real-time trailing drawdown punishes scalpers and momentum traders severely. Firms using this type include most futures prop firms like Apex and Topstep.
Quick Comparison
| Type | Resets? | Moves Up? | Difficulty |
|---|---|---|---|
| Daily Drawdown | Yes (daily) | Sometimes | ★★★ |
| Static Max DD | No | No | ★★ |
| Trailing DD (EOD) | No | Yes (EOD) | ★★★★ |
| Trailing DD (Real-time) | No | Yes (tick-by-tick) | ★★★★★ |
Which Firms Use Which?
Static Max Drawdown
FTMO, FundedNext, The5ers, E8 Markets
Real-time Trailing
Apex Trader Funding, Topstep, Earn2Trade
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